Bill of exchange (draft)
A bill exchange (called draft in some jurisdictions) can be defined as “any instrument drawn on drawee that orders the drawee to pay a certain sum of money usually to a third party (the payee) on demand or at a definite future time “
Section op 5 of the Indian Negotiable instrument act of 1881 also defines it similarly in the following way.
“A Bill of exchange is an instrument in writing containing an unconditional order, signed by maker, directing a certain person to pay sum of money only to, or to the order of a certain person or to the bearer of the instrument”
Black’s law dictionary also defines a Bill of exchange as
”An unconditional written order signed by one person (the Drawer) directing another person (the drawee or payer) to pay a certain sum of money on demand or at a definite time to third person (the payee) or order.”
All the above definitions, although slightly employ different words, could be regarded as the correct definitions, of Bills of exchange.
Compare the three definitions and clearly indicate the common elements and what is missing from any one of the definitions?
As you can see from the above definitions there are three parties in Bills of exchange. These are the Drawer, Drawee and payee. The maker of a bill of exchange is known as the Drawer. He is the party that initiates a bill of exchange, thereby ordering the drawee to pay. The person who is ordered or directed to pay is called the Drawee. He is the party who receives order from the drawer to make payment to the payee. A payee is the person who will receive the money. In other words, he is the party to whom the instrument is made payable.
The nature of the order given by the drawer or the nature of the right to be received by the payee is only a right expressed in terms of money. The money to be paid should be fixed or certain. Regarding the time of payment, the payee will collect the money at the time clearly specified by the drawer. The time may be on demand i.e. immediately after the issuance of the Bill or it may be at a future time which is exact or definite.